Public AdministrationWritten evidence submitted by NCVO (PROC 24)

About NCVO

The National Council for Voluntary Organisations champions and strengthens the voluntary sector, with 8,500 members, from the largest charities to the smallest community organisations. Alongside our sister councils in Wales, Scotland and Northern Ireland, we make sure the voluntary sector can do what it does best. www.ncvo-vol.org.uk

NCVO convenes the Public Service Delivery Network, Special Interest group of sub-contractor organisations involved in the Work Programme, and a Payment-by-Results working group that will be making recommendations in 2013.

Summary

Procurement practice, particularly of central Government, can show a lack of understanding of the voluntary sector. Too often, contracts are framed inappropriately for voluntary sector organisations (VSOs) to participate—they are often too large, pass on too much risk, and require too much capital. The voluntary sector has distinct strengths to bring to public services, but also distinct characteristics that need to be considered by procurement officials.

Payment-by-results approaches are a particular concern for the voluntary sector. Most VSOs cannot participate, as they cannot wait for payment. Charities that are involved, as sub-contractors to primes, have had mixed experiences so far. These issues must be addressed urgently, as Government rolls out more programmes in this way.

Commissioning is the key to improvement, and procurement is only one part of the commissioning process. Good commissioning involves public bodies consulting people properly about services, engaging with and developing the supplier market, and considering social value—all before getting to the procurement stage. Public bodies could then take more informed approach to decide on the best procurement approach in each case: for example, considering grants, service delivery contracts or payment-by-results.

Introduction: The Voluntary Sector’s Role

The voluntary sector has been involved in public service delivery for many years. As such, we have extensive experience of the Government’s procurement policies and practice.

25% of voluntary organisations receive funding from one or more statutory sources. Over the period since 2000, the voluntary sector’s statutory income has grown faster than total public spending, suggesting that the voluntary sector has become a more important contributor to GDP and a notable player in the provision of public services.

Over the past ten years, there has also been a shift towards service delivery contracts—worth £10.9 billion in 2010, up from £4.3 billion in 2000 (inflation-adjusted)—with a reducing number of grants available—worth £3 billion in 2010, down from £4.4 billion in 2000 (inflation-adjusted).

Although social work activities predominate, the voluntary sector provides services across a broad range of areas:

INCOME FROM STATUTORY SOURCES, BY SUB-SECTOR, 2009–10 (% OF EACH SUB-SECTOR’S INCOME)

Source: NCVO/TSRC, Charity Commission

Further information on the voluntary sector can be found in NCVO’s UK Civil Society Almanac: http://data.ncvo-vol.org.uk/

Our report Open Public Services: Experiences of the Voluntary Sector provides recent case studies on: commissioning, supply-chain management, sharing information, managing scale, new forms of finance, managing risk and ensuring quality.

http://www.ncvo-vol.org.uk/sites/default/files/open_public_services_experiences_from_the_voluntary_sector.pdf

Q1. How successful has the Cabinet Office been at improving public procurement policy and practice?

1. The Government’s procurement policy and practice has proved difficult for some voluntary organisations. While recognising the Government’s economic priorities, we are concerned that procurement approaches are being used that are inappropriate and sometimes exclude the voluntary sector. This could lead to poorer outcomes and services that do not meet people’s needs effectively. In particular, we observe these changes in procurement practice:

Focus on savings, rather than improving outcomes and services;

Contracts getting larger, so favouring larger companies with most capital, rather than the best or most experienced providers;

More decisions based on price, rather than quality and value for money;

Central Government moving to payment-by-results as its preferred methodology, without detailed consideration of advantages and disadvantages.

2. Commissioning is the key to improvement, and procurement is only one part of the commissioning process. Good commissioning involves public bodies consulting people properly about services, engaging with and developing the supplier market, and considering social value—all before getting to the procurement stage. Public bodies could then take more informed approach to decide on the best procurement approach in each case: for example, considering grants, service contracts and payment-by-results contracts.

3. The Government must redouble its efforts to improve commissioning and support commissioners. The Commissioning Academy and DCLG’s new Commissioning hub will contribute to this, but strong leadership from Ministers and central Government is also required. Procurement reforms on their own are not enough, it is essential that good commissioning takes place at national and local levels to improve public services.

4. Internal changes at Cabinet Office—to create the Efficiency and Reform Group and oversee the Government Procurement Service—have not, in our experience to date, improved procurement practice at the frontline. NCVO supported an earlier EU proposal for a procurement ombudsman, but this was not taken forward by the UK Government. The Right to Challenge and Social Value Act are positive interventions that should give service providers additional weight in their conversations with commissioners, but are not sufficient for accountability purposes. Cabinet Office’s “mystery shopper” function is a good initiative that aims to address poor practice, but also does not offer clout or legal redress. Meanwhile, we are concerned about MoJ proposals to reduce scope for judicial review, which is still the most important backstop when procurement goes wrong.

5. Further comments about wider Government structures at Q5.

Q2. What should be the strategic aim of the Government’s public procurement policy?

6. The Government’s primary strategic aim should be to secure the best outcomes for service users, taking account of value for money. Seeking value for money does not mean seeking the lowest cost. It should include wider consideration, particularly of the social value that could be achieved through delivery of the service.

7. Commissioners are required by the new Social Value Act to take social value (that is, any additional economic, social or environmental benefits) into account when designing a service (ie pre-procurement) and deciding to award a bid. An example of social value: If one contractor offers grounds maintenance services, while another offers a comparable service but also employs ex-offenders and aims to reduce re-offending. The additional value—preventing re-offending and creating employment opportunities for ex-offenders—is potentially of significant additional economic and social benefit, and should be taken into account. Further information on the Social Value Act: http://www.ncvo-vol.org.uk/networking-discussions/blogs/18452/12/07/02/what-social-value-act

8. A further strategic aim of the Government’s public procurement policy should be to support a diverse and effective market. At present, the Government’s approach to procurement favours larger companies and risks creating oligopoly in some service areas. We are particularly concerned that voluntary sector organisations are being shut out, as contract opportunities become larger, pass on too much financial risk and require too much capital. In all cases, commissioners should be required to involve the public and potential providers at the pre-procurement stages, to inform design of the service and help determine the best procurement model.

9. If the Government wants a healthy and flourishing market of service provision, then its procurement approaches need to be varied to suit the individual circumstances.1 A grant may be most appropriate way of funding a voluntary organisation to deliver services at a local level—particularly if the service is niche, small scale and/or innovative. A service contract may be more appropriate where the commissioner wants the provider to fulfil a detailed specification—appropriate for most services, where effective practice is well-understood and the commissioner wants to get best value by comparing a range of bids. Within a service contract, the commissioner should be specifying additional social value that they want to achieve, and considering the appropriate scale and capital requirements.

10. Meanwhile, Government has moved rapidly to establish payment-by-results as their preferred procurement model. Payment-by-results contracts are different to regular service contracts and are only appropriate in some circumstances. In this model, Government transfers risk onto service providers and pays for agreed outcomes. It is best suited to circumstances where commissioners want to support innovative services or innovative coordination of services (by prime contractor)—and are content not to specify the service. However, there are a range of issues with this model that need to be considered. It is essential to have: agreed relevant outcomes, a reasonable attribution method, a deadweight assumption, and to ensure that results payments are sufficiently high to reward the provider for continuously improving results and managing financial risks. These conditions are not straightforward to achieve. It is also likely that the commissioner will pay a premium cost for outcomes, to reflect provider risk, and incur significant administrative costs in setting up these complex contracts. Meanwhile, if results are not achieved, it does not mean that the commissioner has not lost anything: the outcomes will not have improved and in many cases, this will mean the public sector continues to incur acute service costs (eg A&E admissions, arrests, taking children into care etc).

11. While PBR is a compelling idea, in practice, we do not yet have developed examples of payment-by-results working to improve outcomes. NCVO is also particularly concerned about the experience of service providers in these contracts, where risk is inappropriately being passed down supply chains. Voluntary organisations involved in the Work Programme have had mixed experiences, with few able to bid in the first place, some being used as “bid candy” but then receiving no referrals, and others experiencing “back door” unfunded referrals.2 More discussion of the Work Programme is in our following answers.

12. The key again, is better commissioning, that reflects on what type of procurement approach is most likely to deliver good outcomes and value for money in each specific circumstance. There is also a need for better transition management, when Government wishes to move from one approach to another—to help service providers prepare for and manage change.

Q3. Does the Government have the right skills and capabilities to procure effectively?

13. Civil servants at national and local level often demonstrate limited understanding of the voluntary sector. As described above at Q2, a key issue is whether civil servants understand and use evidence to decide what the most effective procurement approach will be for each specific service and provider market. There are a wide range of procurement models, but little evidence that these are considered properly. For example, local authorities switching from ward-level to LA-level contracts without realising that existing voluntary organisations may not be able to bid. Or longstanding and effective local volunteer centres losing out to multi-national companies to deliver local volunteering support (which could alternatively have been grant-funded). Or national Government rushing through procurement of a new payment-by-results programme, without time for voluntary organisations to form consortia.

14. Our analysis is that these problems are caused by:

Civil servants and local officers failing to consult communities and service providers before embarking on procurement exercises. This is a clear requirement of good commissioning, set out in EU & UK law, such as the Social Value Act. Government should do more to ensure all staff are aware of these expectations.

Poor communication between the staff responsible for the service area and those responsible for procurement, leading to lack of understanding about the objectives.

Overreliance on contract levers squeezing out the relationship between commissioners and service providers—to the detriment of service quality.

15. Voluntary organisations also have responsibilities. To build relationships and stay informed about forthcoming opportunities. And where it makes sense for services to be commissioned at scale, to come together and form consortia or other partnerships.

Q4. How should the civil service ensure it recruits and retains staff with the right skills to run procurements, to negotiate and manage contracts and to deliver major projects effectively?

16. The civil service would benefit from external recruitment or secondments from both the private and voluntary sectors, in order to bring in specialist expertise. We also anticipate that the Commissioning Academy training programme will be relevant for many civil servants and that as far as possible this training should be extended to others, including via DCLG’s new e-learning hub for commissioners.

17. NCVO runs a work shadowing programme that pairs charity staff with staff from eight government departments: DEFRA, BIS, MoJ, the Cabinet Office, DCLG, DECC, DfE and the Home Office. It is relevant for civil servants looking to find out more about the voluntary sector, and charity staff looking to improve how they work with civil servants. Last year, 520 people took part in the scheme. Ninety-five per cent of participants said they found their placements very worthwhile or worthwhile, and 92% of voluntary sector respondents said it had increased their knowledge of how government works. Initiatives such as this can improve understanding and practice on both sides.

Q5. Does the Government have the organisational structures in place to enable it to procure effectively? (For example, how far should the Government centralise responsibility for procurement? Do central Government procurement “framework agreements” enable more effective procurement?)

18. It is our assessment that many public services would be improved through more joined-up commissioning across Government—across different policy areas and at the national and local level. Initiatives such as Total Place and Community Budgets have significant potential to transform services, but have been slow to progress and their implications have not yet been fully realised. What we do know is that where central departments drive separate initiatives—for example, to tackle re-offending or unemployment—and these services are then commissioned and procured separately at the local level, it can lead to fragmentation or overlaps that are unhelpful for individuals, for example, unemployed ex-offenders. In many cases, we would be more likely to improve outcomes with “wraparound” or “pathway” services, but such integration remains the exception rather than the rule. This is a longstanding issue that we would encourage the Government to continue pursuing.

19. At a more immediate level, procurement requires a focus on the individual service being procured, to determine the best approach. For example, a service for vulnerable children should not be contracted on a short timeframe, because fundamentally it takes time to build relationships and trust with children and address issues. Similarly, support for vulnerable families would be better sourced from specialist providers who will work together to provide joined-up support, but all too often families experience multiple different services trying to interact with them.

20. Framework agreements are popular in some areas of public service provision. This approach has advantages and disadvantages, as explored in a blog by NCVO: http://www.ncvo-vol.org.uk/networking-discussions/blogs/18683/11/12/16/preferred-provider-frameworks-dodgy-recession-time-procu

Q6. Does the Government collect the management information it needs to understand how public procurement is working?

21. NCVO would like to comment on two specific data points.

22. Firstly, we welcome recent DCLG and LGA consultations that propose to improve information collected about voluntary organisations. This is much needed, as it is evident from our discussions with officials and recent FOI requests by Compact Voice that the Government does not currently hold consistent data about contracts and grants awarded to voluntary organisations.

23. Secondly, NCVO calls on Government to release more of the data associated with its Work Programme and other payment-by-results initiatives. More information about financial assumptions underpinning the programmes, to help organisations assess risks and likely level of return. More data to ensure providers are not “creaming and parking”: that is, helping those who are easiest to reach, at the expense of those with more complex needs. Closely related to this, we would like to see more data about actual numbers of referrals to voluntary organisations (which often provide the specialist support for people with more complex needs).

Q7. How should Government ensure that European directives on public procurement do not inhibit public bodies’ ability to procure effectively?

24. NCVO responded to the EU’s procurement review in 2011 alongside other sector partners.3 We called for raising of the procurement threshold for social services, clear explanations from commissioners about contract size decisions, and supported proposals for a procurement ombudsman.

25. More generally, EU directives should not be considered in isolation, but alongside UK legislation and practice. Regulation is an issue and can be a burden on smaller organisations, but (mis)interpretation of regulation is also a widespread problem. For example, commissioners only disclosing TUPE liabilities to a service provider at the point of contracting, because of a mistaken assumption that the law prevents disclosure at an earlier stage. The Government should do more to provide local authorities and other commissioners with clear guidance on EU regulations and counter common myths, for example on pre-procurement dialogue with service providers and on disclosure of TUPE liabilities.

Q8.How should the Government assess and manage risk when negotiating procurement contracts?

26. Government should consider the characteristics of VSOs when assessing and outsourcing risk. Voluntary organisations typically have limited assets, limited reserves and less access to finance. They are therefore typically less able to absorb financial risks than either the state or private sector. This makes it particularly difficult for voluntary organisations to deal with payment-by-results contracts.

27. If the Government wants the voluntary sector to be involved in these types of contracts, then it will need a more nuanced approach. We recognise that the state, despite its greatest capacity to bear risk, is looking to reduce its own exposure. But it will not succeed in achieving outcomes, if loading risks onto external providers has the result of deterring their participation or causing them financial problems. Likewise, prime contractors should be bearing financial risks, rather than passing these down supply chains. For example, several voluntary organisations promised a certain level and frequency of referrals in the Work Programme, have found much more volatile patterns in practice, with knock-on effects for their cash flow and finances. Smaller voluntary organisations need greater protection to take part in supply chains. Larger voluntary organisations need ready access to finance—without delays—if they are to play a “prime contractor” or sheltering role.

28. More information on risks in the Work Programme can be found in our report, The Work Programme—Perceptions and Experiences of the Voluntary Sector. June 2012 http://www.ncvo-vol.org.uk/sites/default/files/sig_survey_june_2012_report_17.9.12.pdf

Q9. What is the best role for “prime contractors” and what are the advantages and disadvantages of relying on “prime contractors”?

29. We have seen an increase in prime contractor delivery models in recent years, as a result of contract sizes getting larger and Government enthusiasm for payment-by-results schemes. There are potential advantages to this model: achieving greater scale and coordination of services, either thematically or geographically, and managing risk exposure. However, there are also potential disadvantages: lack of local or specialist expertise, more layers of management and increased costs, as primes take significant cut of contract value. In practice, there is limited evidence so far of the effectiveness of the prime contracting model.

30. Prime contractors should have certain skills and expertise, including: contract management, risk management, legal and in some cases back office support eg IT systems, HR. Prime contractors need not be specialists in the particular service area, but should at least have some relevant expertise and access to specialist advice.

31. Prime contractors hold important responsibility for managing their supply chains. There are already examples of good and poor practice in supply chain management within the Work Programme. NCVO is currently working with Serco to develop some further guidance on supply chain management. An essential part of this, in our view, must be greater sharing of data and information—by commissioners and prime contractors, with their subcontractors. This will enable subcontractors to better understand and manage risks. Given all the complexities of payment-by-results, another suggestion is that prime contractors are often be better using a standard service delivery contracts for their sub-contractors, rather than attempting to parcel out mini-PBR contracts with partial outcomes, complex attribution issues and uncertain payment arrangements.

32. The “financial sheltering” of smaller specialist voluntary organisations by larger voluntary providers is an approach adopted by organisations such as Barnardo’s and NACRO. This is a voluntary sector version of prime contracting. Here, the lead organisation develops a partnership structure in which it provides the necessary capital and/or in-kind support to enable smaller organisations to deliver specialist areas of a contract. Barnardo’s describes this approach as the larger organisation taking responsibility for ensuring smaller organisations are able to deliver and therefore maintain diversity of community-based provision within public services.

33. The nature of this relationship can vary. At its simplest, it can be a sympathetic structuring of the funding flow, where upfront grants are paid to providers prior to beginning work; it could involve capacity-building investment; and it can involve delivery of back-office support or sharing physical space with smaller partners. Some of these smaller organisations may be culturally uninterested in managing contracts directly—while others can take the opportunity to learn about operating in the public service market in a relatively safe and supported environment.

34. This partnership ensures that choice and quality of services are maintained for end-users despite the increasing scale of contracts which would otherwise force smaller organisations out of the market. It enables spot-purchasing of specific service interventions with personalised services in mind—including flexibility for budget-holding users. Success though is very much dependent on the integrity of the relationship between the partners, the ability of the smaller organisation to maintain and enhance the quality of its unique work, and the ability of the lead agency to quality manage the delivery.

January 2013